ECON 25000 Lecture Notes - Lecture 10: Transaction Cost, Income Statement

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Measures the investment at acquisition cost for all periods unless that investment is impaired. Does not recognize gains and losses before the time of sale. Reports only realized gains and losses on income statement. Method 2: fair value measurement with unrealized gains and losses in net income. Measures and reports the securities at fair value n the balance sheet at the end of each reporting period. Changes in fair value of marketable securities give rise of unrealized gains and losses. Method 3: fair value measurement with unrealized gains and losses in other comprehensive income. Similar to second method, but does not report changes in fair values in the income statement until firm realizes the gain by selling securities. Must have an offsetting credit for the debit to marketable securities arising from the increase in fair value each year. Debt securities held to maturity: securities are shown on balance sheet at acquisition cost, subject to impairment.

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